Free Trade Agreements (FTAs)
Today we are going to talk about Free Trade Agreements. Canada currently has 13 FTAs which includes over 40 countries and the us have 14 FTAs which includes 20 countries. There are two types of FTAs. One being bilateral which are agreements that include a number of countries or unilateral agreements which are among two countries. For the most part and especially under the Trump administration the us prefer unilateral agreements which is one of the reasons that although Canada has less FTAs they have twice the number of countries participating.
Information on the rules of origin and other pertinent information can be found on both the CBSA and CBP websites at the links below:
Both Canada and the United States have transshipment rules meaning that transshipment goods that qualify as originating will lose that status if they do not remain under customs control or undergo any operation other than unloading, reloading, or any other operation necessary to preserve them in good condition.
They cannot enter the commerce of the country they are transhipped through. So for example: both Canada and the US have a FTA with Jordan.They are both unilateral agreements. So goods must be shipped directly to the us or Canada from Jordan. If goods are shipped directly to Canada from Jordan they would be duty free if meeting the rules of origin. However should one want to sell those goods to a us customer they would be subject to duties since the goods have entered the commerce of Canada prior to be shipped to the us.
Same scenario if goods shipped to us and are duty free and then wanting to ship to a Canadian company. Many of the rules of origin are based upon the rules of origin that were established under the NAFTA agreement where the goods are required to go through a tariff shift in order to qualify for the free trade rate of duty. There are exceptions however and important to understand the specific rules of origin for each agreement.
A good example I can think of would be apparel. Some agreements have a simple cut and sew rule where you qualify regardless of the origin of the fabric provided th fabric is cut and sewn in the territory. Others are more complex.
The current CPTPP - Comprehensive and Progressive Agreement for Trans-Pacific Partnership agreement requires a yarn forward rule where the yarn must originate in one of the CPTPP countries. Currently there are few if any CPTPP countries that manufacture yarn meaning that most apparel will be subject to duty and not qualify for preferential duty rates. So here are a couple of questions you should be able to address once you do a bit of homework.
- As previously indicated FTAs have a direct shipment rule. However, Canada has a FTA where this an exception under certain circumstances, which agreement is it?
- The USA have a FTA agreement with a country that under certain circumstances includes goods from a country they do not have an agreement with, which agreement is it?
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